Pensions penalty threat to 77,000 UK firms

All companies with pension schemes, not just those that run final-salary plans, could end up contributing to the new Pension Protection Fund (PPF).

There are fears that the fund - due to be launched in April - will rapidly become engulfed in financial problems and might seek to increase the number of employers who have to contribute.

The crisis at the car parts maker Turner and Newall is an early sign of the troubles likely to hit the PPF. The company has a shortfall of more than £850 million in its pension scheme, affecting 40,000 members, and this could turn into an early claim on the PPF if an expected wind-up happens after April.

But any move to put the mainstream PPF costs on the country's 77,000 money-purchase schemes - where there is no guarantee of the level of pension that contributions might secure - would be met with fierce resistance.

'There would be outrage,' said David Yeandle of EEF (the Engineering Employers Federation). 'It would seem wrong,' said Tim Kehoe of actuary Mercers. 'It would seem like a last ditch before asking the taxpayer to pay.'

Their objection is that the PPF will mainly be aimed at bailing out only the 11,000 final-salary schemes, where employees are promised a pension equal to a proportion of their final salary. But if claims are substantial, the government might feel that it has no option but to call on money-purchase schemes to make up the shortfall.

Robin Ellison, pensions strategy head at solicitor Pinsents, thinks there is a 75 per cent likelihood of this happening: 'The chances are that the PPF will follow the American scheme, which is getting lots and lots of claims,' he said. 'There is going to be huge pressure for the PPF to cover all schemes.'

The mainstream PPF scheme is designed to step in only where promises of a final-salary pension have been made but cannot be honoured. However, as planned, the PPF will have a second fund covering both final-salary and money-purchase schemes in cases of fraud by an employer. That would be a cash-strapped government's basis for turning to money purchase schemes for millions in funding.